Does T-Mobile stock (TMUS) still have upside potential after gaining more than 21% this year? The stock is trading at 19.31x its fiscal 2019 estimated EPS of $4.03. It’s also trading at 16.16x its fiscal 2020 estimated EPS of $4.82. Analysts expect T-Mobile’s adjusted EPS to increase 19.9% in fiscal 2019 and 19.6% in fiscal 2020. Wall Street also estimates that earnings will rise at a compound annual growth rate of 18.9% over the next five years. However, T-Mobile’s revenues are expected to rise 4.7% in fiscal 2019 and 4.9% in fiscal 2020. The stock looks expensive, considering its earnings growth going forward.

T-Mobile’s expected five-year PE-to-growth ratio is 1.02x. A stock is typically considered overvalued when its ratio is more than 1.

Analysts’ recommendations for T-Mobile stock

Overall, analysts favor a “buy” rating for T-Mobile stock. Among the Wall Street analysts rating TMUS, 85.7% have a “buy” rating while 14.3% have a “hold” rating. None have a “sell” rating. On average, analysts’ 12-month target price for the stock is $88.37, which implies upside potential of 14.0% from the closing price of $77.52 on August 9.

T-Mobile’s financial performance

In the second quarter, T-Mobile reported strong customer growth. The telecom company also posted solid growth in adjusted EBITDA and earnings. T-Mobile’s adjusted EPS of $1.09 managed to beat Wall Street’s estimate by $0.12 in the second quarter. Its earnings also rose more than 18% year-over-year. T-Mobile’s revenue rose 3.9% year-over-year to $11.0 billion in Q2, missing analysts’ consensus estimate of $11.1 billion.

The year-over-year increase in revenues was mainly due to strong 6.2% year-over-year growth in T-Mobile’s service revenues. These revenues rose to $8.4 billion in Q2 of 2019, up from $7.9 billion in Q2 of 2018. The increase in T-Mobile’s service revenues was mostly due to 8.7% growth in postpaid revenues.

T-Mobile reported adjusted EBITDA of $3.5 billion—a rise of 7.1% year-over-year. This increase was mainly due to higher service revenues. T-Mobile gained 1.1 million net postpaid subscribers in Q2, including 710,000 postpaid phone net subscribers. Wall Street analysts expected the company to gain 643,000 postpaid phone net subscribers in that period. The company recently raised its fiscal 2019 postpaid subscriber growth guidance, saying it expects to add 3.5 million–4.0 million postpaid wireless subscribers this year. It previously guided for 2019 postpaid subscriber gains of 3.1 million–3.7 million.

T-Mobile also added 131,000 net prepaid subscribers. In the second quarter, the company posted a record-low postpaid phone churn rate of 0.78% due to increased subscriber satisfaction and loyalty.

To learn about the T-Mobile–Sprint (S) merger and what’s driving T-Mobile stock, see Why T-Mobile and Sprint Merger Odds Reach 50% and The T-Mobile–Sprint Merger Faces New Challenges.

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